By Joseph Sipalan and Praveen Menon

KUALA LUMPUR (Reuters) - Anwar Ibrahim, the imprisoned de-facto leader of Malaysia's opposition alliance, has endorsed a political compact spearheaded by his arch-nemesis Mahathir Mohamad, as ruling party rebels and the opposition join hands to fight against scandal-tainted Prime Minister Najib Razak.

This new coalition could potentially pose the biggest political threat to Najib, who has been facing persistent calls to step down over multi-billion dollar graft allegations tied to the state-owned investment fund 1Malaysia Development Berhad (1MDB) that he oversaw.

On Wednesday, U.S. prosecutors filed five lawsuits to seize more than $1 billion in assets they said were tied to money stolen from 1MDB.

Both Anwar and former premier Mahathir have long been central figures in Malaysian politics. A bitter feud between the two senior leaders spanning nearly two decades has shaped the political landscape.

Anwar, who is one year through a five-year jail term for sodomy - a charge that he and his supporters claim is politically motivated - told Reuters there is "every reason" for the opposition to work with anyone who is committed to an agenda that pushes reforms, democracy and the rights of the people.

"Our position is to collaborate with all progressive forces on a democratic reform agenda and pro-rakyat policies," he told Reuters from prison through an intermediary, using the Malay word for citizen.

Anwar was at a court hearing this week when he provided the comments.

This is the second time Anwar has been sent to prison. He was first jailed by Mahathir on charges of sodomy and graft in the late 1990s, after he was sacked as deputy prime minister by Mahathir.

Anwar, who has since been cleared of his earlier convictions, said he is willing to overlook the decades of bad blood he has had with Mahathir if it means giving power back to the people.

"Contingent upon a policy which is committed to reforms, democratic and pro-citizenry, then there is every reason for the opposition to engage and work together," he said.


Najib has so far appeared unassailable amid the 1MDB scandal, which is the subject of global money laundering probes in at least six countries.

He has weathered persistent attacks on his premiership from the time the scandal first broke 18 months ago. He culled dissenting voices from within his ruling United Malay National Organisation (UMNO) and used draconian laws like the Sedition Act to silence activists and opposition party leaders.

Just last week, Mahathir announced his plan to form a new splinter party made up of rebels from Najib's ruling United Malay National Organisation (UMNO), which will serve as a platform to work with his old foes in the opposition.

Mahathir, who ruled for 22 years, has made no qualms over his main objective, which is to oust Najib over his handling of 1MDB.

It is widely speculated that former deputy Prime Minister Muhyiddin Yassin - who was sacked by Najib last year - will step up to lead Mahathir's new party, lending influence from the southern UMNO stronghold state of Johor. He could possibly be a candidate for prime minister should the opposition succeed in removing Najib.

Also in the mix is former UMNO vice-president Shafie Apdal, whose resignation from the party sparked a mass exodus of UMNO members from the Semporna parliamentary constituency of his home state of Sabah, another UMNO stronghold.

(Editing by Martin Howell)